I. INTRODUCTION

Contract performance may under certain strict conditions be excused if the debtor is not capable of performance due to certain events which in civil law countries is encompassed within the broad notion of "force majeure" or in common law jurisdictions is covered by the doctrine of frustration of contracts. The civil and common law approaches to exemption from performance are quite different particularly regarding their objectives and requirements and are discussed in other contributions. By way of summary, the common law approach starts from strict liability and—to mitigate the insistence on literal performance of absolute promises—only if the initially envisaged purpose of the contract cannot be achieved by certain events external to the debtor including a significant change of circumstances, may the contract be terminated by virtue of the doctrine of frustration.¹ By contrast, the civil law by and large is based on fault liability where non-performance in itself does not establish liability but where first the nature of the non-performed obligation must be determined. If the obligation is a warranty, there will be strict liability; if the obligation relates to a promise to obtain a result, the creditor will have to prove that the promised result was not achieved while, if the obligation is of a best efforts basis, the creditor has a higher burden of proof to the effect that the debtor did not use its best efforts in the performance of the obligation. The doctrine of force majeure that has a statutory basis in most civil law jurisdictions comes particularly into play with regard to obligations to obtain a certain result as the debtor is liable if the result has not been achieved unless it is successful in arguing that the result was not achieved due to the creditor’s fault or due to an event of force majeure. Civil law jurisdictions among themselves also show differences as to the requirements for force majeure: the external nature of the event, the foreseeability of the event and the impossibility to avoid the event with some jurisdictions taking a strict approach of these requirements and other jurisdictions adding an element of reasonableness as to any such events beyond the control of the debtor. Finally, force majeure in the civil law does not terminate the contract but only excuses the debtor from performance.

The theories of frustration of contracts and exemption from performance based on force majeure, apply equally to domestic and international contracts. In an international setting, the differences between various jurisdictions mentioned above emphasise the relevance of the law applicable to the contract. Moreover, the events that might qualify as a frustrating or force majeure event arise frequently in practice and debtors often have to declare force majeure to suspend or terminate contractual performances. On an international plane, any such events may arise particularly in relation to doing business in countries with a higher risk profile related to climatological or political factors. Moreover, international contracts are more prone to opportunistic behaviour by a debtor to attempt to terminate a contract or to avoid its performance by invoking frustration or force majeure. The applicable law and appropriate dispute resolution methods often raise issues as to interpretation, application and enforcement of contracts. The question, thus, arises whether risks are not also to be avoided by creating more certainty, predictability and a level playing field between the contracting parties as to the definition of frustrating or force majeure events, the requirements for applying frustration of contracts and force majeure doctrines and the consequences of these doctrines by means of drafting appropriate clauses in contracts. Frequently, international contracts contain express clauses dealing with these issues.² The follow-up question is then whether international contract practice may not be assisted by a model clause which can be used in low value contracts to reduce transaction costs, in contracts with less sophisticated users that can rely inexpensively and quickly on a trusted model or as guidance for tailor-made contracts. Any such approach, furthermore, may also contribute to a better level playing field for users.

This contribution, in this respect, will discuss and analyse the 2003 ICC Force Majeure Clause³ in the next section.

II. THE ICC FORCE MAJEURE CLAUSE 2003

For the reasons outlined in the Introduction, the ICC Commission on Commercial Law and Practice (CLP) in 2001 formed a task force to work on a revised edition of the ICC Force Majeure and Hardship publication of which the present writer was a member.⁴ The mandate of the task force was to revise the ICC Force Majeure Clause 1985.

The task force met on a number of occasions between August 2001 and November 2002, subsequently submitted a proposal for an ICC Force Majeure and Hardship Clause to the CLP which adopted the proposal. The model clauses were published in February 2003 by ICC Publishing as the ICC Force Majeure Clause 2003 (Clause) and the ICC Hardship Clause 2003.⁵ This contribution is limited to the ICC Force Majeure Clause 2003 and does not address the ICC Hardship Clause 2003. For reasons of convenience, reference will be made hereafter to force majeure events and force majeure clauses but these are intended also to cover frustration of contracts or similar clauses in contracts governed by the law of a common law country. It may, in this respect, be noted that also in such contracts, these clauses are also referred to as force majeure clauses. There is no empirical evidence as to the use of the Clause in practice.⁶

At present, a task force of the CLP is working on revised ICC clauses regarding force majeure and hardship. It is premature to compare the 2003 clauses with the draft revision clauses. It is hoped that this contribution may assist the task force in its endeavours to finalise the revised clauses

As a preliminary and important observation, it is to be emphasised that—notwithstanding the advantages of a model clause—it is subject to party autonomy in a number of respects. First, the parties are free to adopt it and incorporate it in their contract. By virtue of party autonomy, the parties may adopt a model clause in full or in part or adjust it to their concerns and needs as they wish. The ICC Force Majeure Clause 2003 reflects this in part in paragraphs 1 and 3 where the consequences of force majeure enumerated in paragraphs 4 to 9 of the Clause are subject to express or implied agreement to the contrary (paragraph 1) or where the list of events which constitute force majeure are also subject to express or implied agreements to the contrary (paragraph 3).

Second, there may be myriad reasons for the parties to draft a tailor-made clause reflecting the particular features of a transaction, of the sector in which they operate or any other considerations. An example may be a unilateral force majeure clause as one may envisage in construction contracts where the main obligation of the employer is to pay for the works performed and where no frustrating or force majeure excusing events may be needed while the performance of the works by the contractor may well be affected by force majeure.

Third, the ICC Force Majeure Clause 2003 has been drafted in a balanced way in order to ensure the equality of debtors and creditors. Thus, it is particularly relevant for situations where time and costs matter and where there is hardly time or budget to draft tailor-made clauses or where parties are in relatively equal negotiation positions that they prefer to choose an internationally recognised platform ensuring their level playing fields. On the contrary, where parties are in unequal bargaining positions, the party in the stronger position may prefer its own template and impose it upon the other party.

II.A. Application

The ICC Force Majeure Clause 2003 applies if it is adopted by the parties expressly or impliedly or by reference. It does not constitute international custom, trade usage or by and large will not apply as a course of dealing between the parties. Parties are, thus, advised to opt for clear language incorporating the Clause into their contract. Any such incorporation may create hurdles if it is incomplete or ambiguous. The Introductory Note in this respect states that any reference in a contract to the "ICC Force Majeure Clause" shall, in the absence of evidence to the contrary, be deemed to be a reference to the ICC Force Majeure Clause 2003. This statement is aspirational but does not bind judges or arbitrators and, in the end, is a matter of construction under the applicable law or rules of law, also considering that there was a previous edition of an ICC Force Majeure Clause being the 1985 version. The statement, however, may constitute some persuasive authority and, in the context of the revision, it is relevant to pay some attention to this problem particularly regarding the relationship between the 2003 Clause and the revised Clause. Finally, the Clause may also have some persuasive authority even if not adopted by the parties as evidencing international best practice for force majeure clauses and shedding some light as to how force majeure events are to be interpreted and applied.

II.B. General Approach of the Clause

When preparing the 2003 Clause, the task force discussed various approaches in international practice regarding force majeure clauses. Traditionally, contracts under common law worked with lists of events often labelled "Acts of God". Contracts under civil law—often aligning with the statutory rules in a Civil Code—frequently copied the statutory requirements into a force majeure clause but (because of the repetition of the statutory rules without added value) amended or supplemented black letter statutory law with enumerating events that might qualify as force majeure to avoid the uncertainties attached to the lack of definition of such events in the Codes or statutes.

The task force was thus faced with some options: a common law list approach, a civil law open-ended approach or a combination of both. The list approach has the advantages of being clear, certain and of easy application but the drawbacks are the difficulties of defining the list of events (without each time adding language such as "any other event of a similar nature", the eiusdem rule) and of the closed nature of any list. An open-ended approach has the advantage of being capable of capturing events of an unexpected or new nature but the big disadvantage of providing scant assistance to business and their counsel who have to work with it as was already the experience in contracts in civil law jurisdictions which added lists to a general standard. The mixed approach combines the best of both worlds: a defined list of events with a fall back under a general standard. This was the reason for the task force to adopt this approach.

The general standard, however, does not only work as a fall back but also operates as a filter regarding listed events as a listed event as such does not trigger the clause and its effects but subjects it to the requirements of the general standard that a debtor needs to act reasonably to avoid or overcome the event or its effects.

II.C. The General Standard

As indicated, the general standard has two functions: it may be invoked in the absence of a listed event and a listed event must be tested against the requirements of the general standard. In addition, the general standard is combined with a rule regarding the burden of proof. The debtor invoking the general standard must prove that the requirements formulated by the general standard are met. This evidentiary rule seldom will raise problems under the applicable law as it is an expression of the general rule applicable in most jurisdictions that a party asserting that it is excused from performance by an event or that the contract is frustrated by certain events bears the burden of proof regarding the existence of such an event and of the requirements such event must meet.

The general standard is to be found in paragraph 1 of the Clause and reads as follows:

Unless otherwise agreed in the contract between the parties expressly or impliedly, where a party to a contract fails to perform one or more of its contractual duties, the consequences set out in paragraphs 4 to 9 of this Clause will follow if and to the extent that that party proves:

[a] that its failure to perform was caused by an impediment beyond its reasonable control; and

 

[b] that it could not reasonably have been expected to have taken the occurrence of the impediment into account at the time of the conclusion of the contract; and

[c] that it could not reasonably have avoided or overcome the effects of the impediment.

The drafting of the general standard was based on Article 79 (1) of the Convention on the International Sale of Goods (CISG)⁷ with two differences: (1) the Clause provides that an impediment is to be beyond the reasonable control of the debtor while the word "reasonable" is lacking in Article 79 (1) CISG; and (2) the Clause as to avoidance or overcoming the effects of the impediment—unlike CISG—does not cover avoidance or overcoming the impediment itself. One may understand why the first difference was incorporated into the Clause. The task force revising the Clause, however, may contemplate aligning with Article 79 (1) CISG as to the second difference if consensus can be reached that a debtor not only needs to avoid or overcome the effects of the impediment but also needs to deal with the event itself.

Subject to these two differences, in interpreting and applying the general standard, inspiration and guidance may be found in Article 79 (1) CISG and the extensive case law and scholarly writings on the subject. The alignment of the Clause with Article 79 (1) CISG reflects a broader development in comparative law, particularly in civil law jurisdictions⁸ but also in Article 2 of the Uniform Commercial Code in the United States, to replace strict sub-standards regarding the external cause of the event, the absolute unforeseeability of the event and the absolute impossibility to perform caused by the event by more flexible and lenient sub-standards such as an event beyond the control of the debtor (rather than external to the debtor), an event not contemplated at the time of the conclusion of the contract (rather than unforeseeability) and an event that could not reasonably have been avoided or overcome (rather than absolute impossibility to perform).

Paragraph 1 (as well as paragraph 3) of the Clause apply equally to force majeure events existing at the time of the conclusion of the contract and those arising thereafter. While most situations will arise after the contract has been concluded, there may be rare circumstances where such events exist at the time of contracting while the parties are not aware of such events. The Clause applies to both situations as the task force considered that also regarding existing events (as opposed to subsequent events) the parties may benefit from the provisions of the Clause.

Paragraph 2 of the Clause is interesting as it is not often found in force majeure clauses and deals with a neglected but important issue in contractual relationships as to contractual liability and exemption from liability regarding the use of third parties such as subcontractors in the performance of the contract. It provides as follows:

Where a contracting party fails to perform one or more of its contractual duties because of default by a third party whom it has engaged to perform the whole or part of the contract, the consequences set out in paragraphs 4 to 9 of this Clause will only apply to the contracting party:

[a] if and to the extent that the contracting party establishes the requirements set out in paragraph 1 of this Clause; and

[b] if and to the extent that the contracting party proves that the same requirements apply to the third party.

 

This provision is again modelled after the CISG, more specifically Article 79 (2) CISG which, however, is drafted differently in relation to the second condition, i.e. the requirement that the third party would also be exempt if Article 79 (1) were applied to him. It is submitted that the Clause did not intend to deviate from Article 79 (2) CISG and that, under the Clause, application of the general standard to a third party engaged, fully or in part, in the performance of the contract will lead to exemption of the debtor as if the third party were the debtor. Thus, the third party is identified with the debtor and force majeure on the part of the third party meeting the requirements of the general standard qualifies as force majeure of the debtor. As there is a specific regulation regarding the position of third parties engaged in the performance of the contract under the general standard, force majeure on the part of the third party has not been listed under the listed events of paragraph 3 of the Clause. On the other hand, force majeure on account of the third party will not automatically imply that the debtor is exempted under paragraph 1 of the Clause; the requirements of the general standard will also have to be tested in relation to the debtor. Thus, a debtor engaging a third party in the performance of its contractual obligations will be exempted if the criteria of paragraph 1 of the Clause are met both as to the debtor and as to the third party.

Finally, the general standard does not expressly provide a provision to deal with self-induced force majeure,⁹ i.e. a force majeure event caused by the debtor (or for which he contributed), for example where a state-owned exporter causes a government agency to refuse an export licence under circumstances where the exporter would gain from non-performance by reselling at a higher price. As self-induced force majeure is not beyond the reasonable control of the party causing the force majeure event or such event might have been avoided or overcome, there was no need to specifically address this issue.

II.D. Listed Events

From the discussion above, it has become clear that the listed events are not exclusive and do not constitute a closed list and still enable a debtor to proof exemption from performance with regard to non-listed events under the general standard. This section discusses the listed events and their nature. It may be noted that the Clause as to listed events deviates from CISG, from most Civil Codes and from the Sale of Goods Act in combining a general standard with a list of events. It is submitted that this is a major benefit of the Clause as compared to uniform and domestic law.

The listed events to a certain extent trigger the application of the force majeure clause in that they put the creditor in a better evidentiary position as it does only have to prove the existence of the event which then automatically, by operation of its listing, qualifies as a force majeure event. However, any such force majeure event does not then trigger the Clause, as the force majeure event must still be tested against the general standard’s requirement; the debtor still needs to prove that it could not reasonably have avoided or overcome the effects of the listed event. On the other hand, evidence of an event which qualifies as a listed event does not need to be tested against the other two requirements of the general standard. As paragraph 3 of the Clause refers only to paragraphs 1[a] and 1[b], a listed event is presumed to have established that the event is beyond the reasonable control of the debtor and that it was not contemplated at the time of the conclusion of the contract. The absence of a reference to paragraph 1 [c] of the Clause implies that also in the case of a listed event, evidence is required by the debtor that he could not reasonably have avoided or overcome the event. Under a listed event, the debtor, thus, has the burden of proof of the event and that it could not reasonably have avoided or overcome the impediment but not that it was beyond his reasonable control or was not contemplated at the time of contract formation. Conversely, as the evidentiary presumption does not finally dispose of the requirements of reasonable control and within the contemplation of the parties at the time of contracting, the presumption shifts the burden of proof to the creditor that still can prove that the event was within the reasonable control of the debtor or that the event was within the contemplation of the parties when concluding the contract.

For information purposes, the 2003 ICC Clause listed events may be quoted in full:

In the absence of proof to the contrary and unless otherwise agreed in the contract between the parties expressly or impliedly, a party invoking this Clause shall be presumed to have established the conditions described in paragraph 1[a] and [b] of this Clause in case of the occurrence of one or more of the following impediments:

[a] war (whether declared or not), armed conflict or the serious threat of same (including but not limited to hostile attack, blockade, military embargo), hostilities, invasion, act of a foreign enemy, extensive military mobilisation;

[b] civil war, riot rebellion and revolution, military or usurped power, insurrection, civil commotion or disorder, mob violence, act of civil disobedience;

[c] act of terrorism, sabotage or piracy;

[d] act of authority whether lawful or unlawful, compliance with any law or governmental order, rule, regulation or direction, curfew restriction, expropriation, compulsory acquisition, seizure of works, requisition, nationalisation;

[e] act of God, plague, epidemic, natural disaster such as but not limited to violent storm, cyclone, typhoon, hurricane, tornado, blizzard, earthquake, volcanic activity, landslide, tidal wave, tsunami, flood, damage or destruction by lightning, drought;

[f] explosion, fire, destruction of machines, equipment, factories and of any kind of installation, prolonged break-down of transport, telecommunication or electric current;

[g] general labour disturbance such as but not limited to boycott, strike and lock-out, go-slow, occupation of factories and premises.

This list of events, largely copied from the earlier ICC Force Majeure Clause, does not need further discussion as they correspond to similar lists often found in force majeure clauses. The fall back of the general standard may solve gaps in the list or in situations where the listed event leads to interpretation or application problems. In those cases, the difference between the exemption regime for listed events and the general standard is to be found in the different evidentiary treatment. A gap in the list or a problem regarding the interpretation of an event may require relying on the general standard and the debtor may also have to prove that the impediment was beyond its reasonable control and was not contemplated at the time of the conclusion of the contract.

II.E. Effects of a Force Majeure Event

Triggering force majeure under the Clause requires the debtor—under paragraph 4—to give notice without delay as of the time when the impediment causes the failure to perform. If notice is not given without delay, any time from which the debtor is relieved from non-performance only runs as of the time notice reaches the creditor.

If force majeure is successfully triggered, it exempts the debtor from its duty to perform its obligations under contract as of the time notice is given. Under paragraph 5 of the Clause, the debtor is also exempted from any liability in damages or any other contractual remedy for breach of contract as of the same moment. Paragraph 7 obliges the debtor to take all reasonable means to limit the effect of the impediment or event invoked upon performance of its contractual obligations. These provisions all follow the civil law approach under which force majeure does not terminate the contract but is only an excuse for non-performance. As the excuse is legitimised by law or under the Clause, there also is no room for other remedies for breach of contract as the breach is excused.¹⁰ On the other hand, the debtor has an obligation to mitigate the effects of its excuse.

Under paragraph 6, an important distinction is made between events which only temporarily prevent the debtor to perform and events which make it indefinitely impossible to perform. This is an essential provision to clarify the uncertainties under the law of civil law jurisdictions as to whether force majeure, although it is only an excuse for non-performance, leads to a freezing of the contractual relationship and its coming to a standstill and eventually to a no-fault de facto termination. Contract practice has dealt with this problem for a long time with provisions providing for a suspension of the contract pending the force majeure situation in cases where the force majeure situation is considered to be temporary and with procedural and substantive provisions as to the rights and obligations of the parties, often with a right for the creditor to terminate the contract if the force majeure situation exceeds a certain period of time.¹¹ It is fortunate that paragraph 6 of the Clause also adopted this approach in providing that the debtor is not relieved permanently from performing his obligations but that a temporary force majeure situation only exempts from performance to the extent and as long as force majeure impedes performance by the debtor.¹² The debtor is then under an obligation to notify the creditor as soon as the force majeure situation ceases to impede the performance of its contractual obligations. The task force did not add a provision entitling the creditor to terminate the contract if the force majeure situation exceeds a certain period as it is difficult to determine any such period as it is context specific. Parties adopting the Clause may consider reflecting on this issue and amend the Clause if so desired.

The effects for a creditor being bound by a contract suspended on account of a temporary force majeure situation which does, however, not exclude the debtor, may be mitigated by paragraph 8 of the Clause which entitles either party to terminate the contract by notification within a reasonable period to the other party provided the duration of the force majeure situation has the effect of substantially depriving either or both contracting parties of what they were reasonably entitled to expect under the contract. Paragraph 9 complements paragraph 8 with a provision under which a party deriving a benefit before the termination of the contract by reason of anything done by another party in the performance of the contract, shall pay to the other party a sum of money equivalent to the value of such benefit. Paragraph 8 is an escape clause addressing the duration of the force majeure situation which, however, may lead to opportunistic behaviour and to interpretation problems as to whether a termination is warranted in view of the open-ended criterion of substantial loss of reasonable expectations under the contract. Parties may be advised to consider whether under the circumstances the maximum duration of the force majeure situation is not to be determined in advance.

III. CONCLUSION

The ICC Force Majeure Clause 2003 may be considered as state of the art when it was published reflecting international best practice as well as the most recent developments in uniform law and comparative law. Evidently, parties to international commercial contracts may consider not adopting this model or adopt it only in part or with some modifications. In other respects, the Clause may be useful for certain users, sectors or situations or as persuasive authority from various perspectives. The revision work of the task force is to be encouraged to take a fresh look at the Clause and, based on its analyses, to come forward with a new clause which may serve the interests of the international business community.

 

 

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